Thursday, November 17, 2011

What do these two have in common?

Anyone know? Please post your answer below as a comment. No idea? I'll tell you in a few days.

Wednesday, November 16, 2011

The Art of Innovative Consumption - Part 2

Continued from here...

The extreme price differences found in the market for computer hardware in Australia are not necessarily shared by other types of products. What, then, can an innovative consumer do when the product they want is universally costly? What about where there is a monopoly or near monopoly? Well, there are still some options. There are always options.

The second hand market is always worth considering. I grew up with most things bought second hand. New items in our home were a rarity. Most were bought from opportunity shops, but sometimes, just for a treat, we would save up and buy something through the trading post. Now, since the advent of computers - available for less than you think, as those who read part 1 will be aware - we can search through extensive classifieds, bid on eBay auctions, contact locals with things for sale through Gumtree and look up vast amounts of information on the item we intend to buy so as not to get ripped off.

Books are a good example of a product that costs significantly less when purchased online than it does over the counter. Though I do love to look through a book shop and sit in its cafe reading books I am considering purchasing and I will miss the many book shops that have closed recently in Melbourne, the fact is, none of us are made of money and not everyone can afford to pay double or triple the price simply to keep over the counter retailers afloat: they're not a charity. By the way, one way you can buy books is by clicking the adds below this article and ordering them online - new or second hand, digital or hard copy.

The reality is, though, not all the items we want are for sale at reasonable prices and not all the ones at reasonable prices are within our budget. Even if they are, further savings can allow us to invest for the future or make our budgeting more rewarding. The next step in creative consumption is to stop viewing an item in its entirety and begin to consider its component parts.

There are a number of reasons why the cost of a complete item may be more than the sum of it's component parts. Key among these are cost of assembly and the desirability of a complete and usable product.

The mere act of assembling the parts must have required resources. More often than not those resources are human resources and human resources cost money, no matter how much that cost can be minimized by outsourcing to countries without minimum wage laws. By completing as much of the assembly process one's self, one can trade one's time for money. Often the relatively small amount of time that this takes can seem grossly disproportionate to the amount of money it would have cost for the already assembled item. Ikea are hinting at this when they sell you flat packed furniture. As their communication team are keen to emphasize, this also makes it easier to carry home on your car roof rack.

Referring back to the example of computers mentioned in part 1, many computer parts suppliers will charge you for an hour or more of labor at a rate far in excess of what they actually pay their employees, for the assembly of the parts you have purchased. However, this is not always the case: some stores such as Yamada Denki in Japan will assemble your computer parts for you for little or no cost. Of course it still pays to do your homework and research the parts you will choose, since this will enable your to purchase a computer that suits your needs based on parts that represent a good balance between reliability, cost effectiveness and performance.

Assembly costs aside, there is another key factor that inflates the price of complete items when compared to the sum or their components. That is, desirability. It is far easier to market an item that looks complete and is ready to perform its function than one that will require work to assemble. Where components or items not yet assembled are marketed, communication usually centers around images representing their potential. Ikea achieve this by placing on display fully assembled items in a setting that demonstrates their usefulness, mutual compatibility and function. Cake mixes are usually sold with a photo on the box not depicting the little white sachets contained within, but rather the cake you could potentially create by adding the right amount of water and baking in the right dish at the right temperature for the right amount of time. The packaging of computer graphics cards often depicts examples of the computer graphics that may potentially be displayed on your monitor after you have installed the card in your computer, as long as you have the right combination of other components, complimented with the right software.

The point of all those examples is this: products' prices have far more to do with the laws of supply and demand than they do with the cost of manufacture. Demand, in the case of non essential items, relates to desirability and desirability increases dramatically once a product is completed. A completed product performs a function and it looks and feels complete.

However, to the innovative consumer, these virtues offer a completed product only a very short term advantage over the components though, since once we purchase and assemble them, they will gain exactly the same properties as the completed item.

We may even make improvements along the way. We can choose the precise components that suit us, rather than settling for the combination a manufacturer chose. This is very important, because many manufacturers choose the components that will slightly out compete a rival product or slightly outlast a warranty. We, on the other hand, can choose the best combination, giving the product exactly the performance and features we need and finding our own balance between cost and longevity.

One final benefit of self assembly is that by gaining knowledge of the components, we are able to replace them individually when they fail, calling on manufactures' warranties while they apply, or choosing second hand parts once they expire. This saves a great deal of inconvenience and potential cost.

As innovative consumers who assemble our possessions from their component parts, we achieve the next level of mastery over our material lives. The process bears rewards that extend well beyond the financial. We learn and develop as people through interaction with the man made artifacts that constitute a large part of our culture. We become increasingly self reliant, able to recombine parts in new and creative ways. We can perform repairs and modifications. These things are highly satisfying and enrich our lives.

To be continued...

In the mean time, please consider the following books/eBooks. Prices start from $0.99. Part of the proceeds will support this blog. 

Wednesday, November 09, 2011

The Art of Innovative Consumption - Part 1

When competition is lacking and prices rise, are there still choices
When competition is lacking and prices rise, are there still choices? Often there are not, certainly not obvious and appealing ones. However, with some creativity and resourcefulness, we as consumers have the ability to move about the market place and fins alternatives in ways business doesn’t factor into its modelling because they are not statistically significant. Doing this can save us a great deal and can enrich our lives in surprising ways. This article will introduce some alternative approaches to being a consumer and discuss some of their merits.

            Being an innovative consumer is a good way to save money. However, other benefits include reducing waste and choosing to support companies and businesses that are good employers and choose environmentally sustainable business models.

            A good first step for many in terms of becoming an innovative consumer is to shop around. Simply calling a few businesses out of the Yellow Pages for quotes is better than nothing, but often the quotes are altogether too similar and the results can be disappointing. Therefore, assuming that one has made a decision to obtain a particular product, one needs to think creatively about alternative ways to obtain it. This means looking beyond the brands and retailers that market directly to one’s own location and demographic and searching further afield.

Though prices are said to be set through supply and demand in the market place, this is slightly misleading because it suggests that there is one marketplace. There are in fact many, and the same product may be competing in several. For example, buying a desk top computer from a major retailer can be a costly business, with retail mark ups in excess of fifty percent and manufacturers using the most basic possible parts in order to keep their profit margins as high as possible. If we compare their prices with some smaller computer shops they may appear reasonable, since many small computer shops aim to compete for the same market segment by keeping prices only slightly lower and offering a similar quality product. It is only when we actively go in search of businesses appealing to a different target market that we are able to see any real difference. For example, if we look for businesses that aim to sell computers to the IT savvy, we see that we are able to obtain a similar system for less than half the price. We may need to wait in line for it and have someone talk to us in high speed jargon with a strong accent, but if we knew what we were after in the first place and did our homework, there it would be. What is more, we would have many options and be able to buy something tailored to our individual needs.
A crucial aspect of innovative consumption that makes the above scenario possible is our ability to do research and know what products will suit us before we approach whomever is selling them. Reading the tech blurbs on the Harvey Norman website it is sometimes difficult to imagine that the products and technologies they offer have anything to do with the jargon and model codes that are used to represent products in the catalogues of IT catalogues. Their language is modified to suit their communication team’s target audience, of whom you may unwittingly find yourself a member if your knowledge of language is restricted to commonly known terminology. To be a truly innovative consumer, you have to learn specialised vocabulary. Learning one or more second language also helps as will be elaborated in part two. Stay tuned.

To be continued…

In the mean time, here is some further reading on the subject. Proceeds appreciated by this blogger. 

Friday, November 04, 2011

Dog Washing, Hair Dressing and the Future of the Australian Economy (In response to a question. Isn't it nice how interactive and multi directional communications media are these days?!

The following comment was posted in response to this post. My response is altogether too verbose to be posted as another comment, so here is is.  

Ann said...
Do you think Australia is becoming a third world country and that the balance of power and wealth will shift worldwide? We export our resources (human and physical) to India and China and dispense with our manufacturing industries. It seems to me that an economy and society based on tourism, dog washing and haircutting is not sustainable. The mining boom is a good example of short-term greed at the cost of sustainability.

Thursday, November 03, 2011

Investigative Journalism

The television program 'The Hamster Wheel' recently ran a skit about the sad state of investigative journalism. It showed a journalist standing next to a fax machine, waiting for the morning's stories to be sent in, then calling the numbers at the bottom of the pages to ask a couple of questions.

Sadly, judging by most of the articles in the mainstream media, the comedians have it right. Genuine investigative work by journalists has become a rarity. The reality is that journalists are expected to produce ever increasing outputs in a way that meets the requirements of the twenty four hour news cycle. The media have become better than ever at getting a story published quickly, but they have done so at the expense of analysis, fact checking and investigation. This is bad news for the role of the public sphere in democracy.

So is there any good news? Well, perhaps. Hope comes in many forms, but two of them in this case may be blogs and QandA.

The ABC's panel show where the audience, including viewers using twitter and other forms of communication, ask questions of politicians and other persons of perceived importance. The quality of the questions asked is not exactly Kerry O'Brian standard, but the discussions that ensue are often quite interesting and allow various perspectives to be heard, even if there is little chance of anyone actually changing their mind. The show certainly contributes to democracy. The problem is though, the participants are almost exclusively reliant on other mainstream media for information.

Blogs may go some way toward addressing this. At their best, bloggers can go to some lengths to bring important events and ideas to the attention of their readers. Fellow blogger Mark Glaser has been kind enough to list some historically significant examples in this post, at least in the USA. The blogosphere has further expanded since then, so let us hope that investigative blog journalism has done so with it.

Bloggers may not have as much in the way of funding and resources as mainstream media companies do. However, what they do have, is the time and freedom to do research. Some of us do not have as much as we would like, but certainly more time and freedom than a full time journalist. Ideally, there should be investigative journalists with both resources and time, but they are few (perhaps they all work for the ABC) and in the mean time us bloggers will have to do the best we can. This is more a commentary blog than a news blog, but perhaps I may start a news blog too, since there is clearly a need for one. If I do, I will update it weekly, not daily, so as to allow time for proper investigation.

CEOs and Incentives

CEOs often have little or no incentive to improve. Even in cases of very poor performance by the companies they lead, they continue to receive extremely high pay, often award themselves bonuses and, once they leave, are able to easily find similar work in other companies, no matter how bad they are at it. This is a sad state of affairs.

Qantas CEO Alan Joyce is a prime example of this. Increases in his pay are completely disproportionate both to the company's performance under his leadership and to the working conditions of the majority of Qantas employees. 

When share holders vote on pay increases it is rare for the recommendations of the board to be opposed. Those who cast proxy votes but don't specify any instruction by default allow decisions to be passed. Even if there were a high level of voter engagement it would be hard for small share holders to have much influence, since major share holders in companies tend to belong to the same social elites as the company leaders and share similar ideas. 

This is a serious issue of corporate governance. Companies themselves are unlikely to decide to make changes, as they lack any financial incentive. The interests of companies as a whole, as organisations of people working together to earn a living and achieve something, would be better served by restrictions on pay, share schemes, bonuses and benefits given to company leaders. Bonuses must be conditional if they are to be an effective incentive for improvement and for them to be meaningful, salaries and other benefits must be kept at levels where their recipients, though well off, will still feel a need for more income. 

The only way that restrictions can ever be put in place is through legislation. The chances of it happening are very slim. The most likely outcome is that we will be interminably stuck with poorly performing companies that serve largely as a means of funnelling funds into their CEOs' bank accounts.